This is a CU Colorado Springs student blog for the following courses: Intermediate Microeconomics and Austrian Economics.

February 21, 2013

TIME to Change Minimum Wage

It is understandable
how most people get caught up with the moral argument for minimum wage.The
poor make too little to live, they argue.And the easiest solution is for government to force employers to pay
more.Perhaps they’ve heard the economic
arguments against it, but choose to doubt such assertions in favor of “morality”.Shamus Khan of TIME Magazine, on the other
hand, chooses to ignore Econ 101 altogether.In his article titled, “The
Promise of More: Why We Should Raise Minimum Wage,” he somehow argues that minimum
wage is good for the poor and good for economic progress.When you choose to ignore common-sense economic principles, I guess it’s possible to have your cake and eat it
too.

Khan should take a lesson from his own statement: “As minimum
wage has remained flat, productivity has increased.”Of
course productivity has increased without a rise in the minimum wage.Had minimum wage increased, productivity
would have decreased or surely increased less.That’s the fact of economics: it is not consumer spending that leads to
economic growth and prosperity; it is the accumulation of capital and capital
investment that is the engine of the economy.If entrepreneurs have lower labor costs, they accumulate more capital
and embark with capital investments that they wouldn’t otherwise undertake
(lower labor costs also make more potential ventures profitable).In the long run, this increase in capital
investment and productivity leads to higher wages and a better quality of life
for all people.

It is easy for some to ignore economic history; however, to
understand the facts Khan needs to look no further than the Industrial
Revolution in Britain.The country went
from a poverty-ridden peasant population to the first thriving, modern
economy.Population exploded because industrial
prosperity led to less peasants dying from poor living conditions. What would
minimum wage laws done to this progress?What if Khan was there to argue: ‘those
poor workers need higher wages to live off of’?That clearly would have led to less industrial progress; industrialists
would have embarked on less projects because some would have been made
unprofitable due to minimum wages; and the projects that did go forward would
have resulted in less accumulated capital, decreased the expansion of future
projects.So many of those “poor
workers” would have ended up returning to their jobs as starving peasants.

It is
time for TIME to change its understanding of economic progress and
prosperity.Minimum wage doesn’t help
the poor; it only slows the growth that leads to economic prosperity and a
better quality of life for all
people, including the poor.